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Southern African Development Community (SADC) and East African Community (EAC) countries are exploring the feasibility of establishing a monetary union. This study assesses the economic integration in the two blocs, using the interest rate pass‑through mechanism to determine the convergence of interest rates in the two regions. This study evaluates the potential for forming a monetary union using the panel autoregressive distributive lag model (PARDL) with monthly data from January 2000 to December 2022, including central bank and retail bank interest rates. The dynamic common correlated effects (DCCE) results suggest that the complete interest pass‑through to retail bank rates does not hold for the two blocs. Secondly, there are varying speeds of adjustment for banking rates in response to changes in policy rates. In addition, the incomplete interest‑rate pass‑through for the two blocs indicates the presence of banking market imperfections, weak banking asset quality, and information asymmetries, which are more pronounced in the EAC. Monetary policymakers should implement measures to enhance the efficiency and competitiveness of their financial systems to minimise these imperfections.

The COVID‐19 pandemic has highlighted the need of maintaining financial and economic stabilization to mitigate the negative effects of the health crisis. In the context of a currency area, national governments count on national fiscal and macroprudential instruments to stabilize their own economy. Through a DSGE model for a monetary union I assess the welfare implications of different macroprudential‐fiscal policy combinations, that are set with stabilization purposes. The findings confirm that for a supply and a demand shock, as the ones responsible for the economic crisis of 2020, the stabilizing policy mix might deteriorate welfare. By contrast, after a financial shock, similar to that of the Great Recession, the stabilizing policy combination strategies always achieve welfare gains. [ABSTRACT FROM AUTHOR]

We utilise a standard reduced‐form neo‐Keynesian model in a monetary union, in which the monetary authority and the fiscal authorities strategically interact, to explore who, under alternative institutional arrangements (strategic and fiscal regimes) and shocks' configurations, bears the burden of asymmetric shocks' stabilisation. We show that in the core/periphery fiscal regime, described by an asymmetry in the sequence of moves between the core and the peripheral member‐states, asymmetric shocks pass through at the union level to the inflation rate and the output gap when there are strategically significant spill‐over effects and the monetary policy's and fiscal policies' instruments are not perfect substitutes in the stabilisation process. The monetary authority reacts to asymmetric shocks, but does not succeed in fully offsetting them. The first best implies the coordination of fiscal policies. A second best embraces the fiscal leadership strategic regime (as a form of implicit coordination), when there are strong interconnections in the union, or the use of policy instruments by the fiscal authorities that directly decrease inflation when fiscal policy is expansionary, such as taxes, production subsidies or public investment, when there is a strong cost channel of monetary policy. [ABSTRACT FROM AUTHOR]

Objective: The objective of the article is to investigate the suitability of the European Union (EU) convergence criteria as an evaluative instrument in assessing its progression from the monetary union (MU) to the fiscal union (FU). The secondary aim was to propose a list of 'fiscal confluence criter ia' as a foundation for evaluating member states' ability to adhere to the fiscal union. Research Design & Methods: A quantitative research methodology was employed, using eight indicators and three distinct methods (Euclidean distance, standardized sums, Technique for Order Preference and Similarity to Ideal Solution) to create a joint development measure, known as the core measure, for each group: CMMU and CMFU. I employed Spearman's - to calculate the rank correlation between Monetary and fiscal union. The research sample comprised all 27 European Union member states (EU MS). I sourced the datasets from reputable databases, namely Eurostat, the International Monetary Fund (IMF), the World Bank (WB), and Accounting for Transparency (AFT). Findings: The integrity level of the EU member states falls notably below the established thresholds. There are significant discrepancies between the countries. Consequently, the possibility of the EU attaining the next level of integration (FU) in the foreseeable future is limited. Implications & Recommendations: Given the obvious limitations on the ability of EU member states to pursue further integration in the immediate future, policymakers, and business entities within the EU should prioritize maintaining the agreement in its current form (Economic and monetary union). Further research should immediately concentrate on the causes and remedies of rising Euroscepticism in EU MS. Contribution & Value Added: This research offers valuable insights into the potential for further integration within the EU. Moreover, it initiates a discourse on the formulation of new criteria for the next level of integration (fiscal union). [ABSTRACT FROM AUTHOR]

We examine the nexus between financial inclusion and inflation targeting monetary policy effectiveness in West African Economic and Monetary Union countries by employing a heterogenous panel approach that enables us to delineate the responses to policy innovations related to idiosyncratic country‐specific shocks, common shocks, and composite shocks. We find that these shocks significantly affect inflation and financial inclusion but with varying magnitudes, signs, time of responses, and persistence. We further demonstrate that inflation targeting monetary policy is differently associated with the various dimensions and indicators of financial inclusion. Overall financial inclusion shocks temporarily increase inflation; deposit shocks reduce inflation; and credit shocks increase inflation. Central bank policy rate differently responds across time horizon to overall financial inclusion shocks; and it increases due to credit shocks highlighting that the monetary authority responds to credit shocks by implementing contractionary monetary policy. Our results highlight that monetary policy aimed at promoting inclusive financial services and responses of monetary policy to financial inclusion should be specific to the dimensions of financial inclusion. [ABSTRACT FROM AUTHOR]

Objective: The objective of the article is to investigate the suitability of the European Union (EU) convergence criteria as an evaluative instrument in assessing its progression from the monetary union (MU) to the fiscal union (FU). The secondary aim was to propose a list of ‘fiscal confluence criteria’ as a foundation for evaluating member states’ ability to adhere to the fiscal union. Research Design & Methods: A quantitative research methodology was employed, using eight indicators and three distinct methods (Euclidean distance, standardized sums, Technique for Order Preference and Similarity to Ideal Solution) to create a joint development measure, known as the core measure, for each group: CMMU and CMFU. I employed Spearman’s ρ to calculate the rank correlation between Monetary and fiscal union. The research sample comprised all 27 European Union member states (EU MS). I sourced the datasets from reputable databases, namely Eurostat, the International Monetary Fund (IMF), the World Bank (WB), and Accounting for Transparency (AFT). Findings: The integrity level of the EU member states falls notably below the established thresholds. There are significant discrepancies between the countries. Consequently, the possibility of the EU attaining the next level of integration (FU) in the foreseeable future is limited. Implications & Recommendations: Given the obvious limitations on the ability of EU member states to pursue further integration in the immediate future, policymakers, and business entities within the EU should prioritize maintaining the agreement in its current form (Economic and monetary union). Further research should immediately concentrate on the causes and remedies of rising Euroscepticism in EU MS. Contribution & Value Added: This research offers valuable insights into the potential for further integration within the EU. Moreover, it initiates a discourse on the formulation of new criteria for the next level of integration (fiscal union).

Lack of faith in national debt sustainability and country-financial market fragmentation are frequently two sides of the same coin in a monetary union. With the start of the global financial crisis in 2007, the fragmentation has significantly expanded, thus the effectiveness of interest rate pass-through has become more heterogeneous across euro-area countries, making single monetary policy more challenging. Since the start of the COVID-19 pandemic, financial fragmentation was overturned by a set of European Central Bank monetary policy expansionary measures and by the EU’s decision to implement a fiscal capacity centered on temporary Support to mitigate Unemployment Risks in an Emergency (SURE) and the program of the Next Generation EU (NGEU). Our aim in this article is to examine financial market fragmentation in the euro area and discuss solutions on how to reduce it.

This study investigates the possibility of forming a monetary union across West Africa. This was achieved by employing the structural VAR framework. Data on real GDP, inflation, and exchange rate were used to represent supply, monetary, and demand shocks from the period 1986 to 2020. The impulse response and variance decomposition results showed that shocks affecting the West African region are idiosyncratic, while the residuals of the structural VAR were used to compute the correlation coefficient. The correlation coefficient revealed that the demand and monetary shocks were symmetric across WAEMU countries and asymmetric for the rest of the region. The study suggests that theWest African region is not ripe for a monetary union. However, the study opined that the WAEMU countries are the closest to forming a West African monetary union and a piecemeal approach may be adopted such that the WAEMU countries are the first to form the union, while the rest may join when they meet the convergence criteria. In essence, West African countries' central banks need to focus on harmonizing their monetary policies and remove all barriers to factor mobility for the synchronization of shocks and for all countries to meet the convergence criteria. [ABSTRACT FROM AUTHOR]

Purpose: For close to two decades, the West African Monetary Zone (WAMZ) has been preparing to launch a second monetary union within the ECOWAS region. This study aims to determine the impact such a unionised monetary regime will have on financial stability as represented by the nonperforming loan ratios of Ghana in a counterfactual framework. Design/methodology/approach: This study models nonperforming loan ratios as dependent on the monetary policy rate and the business cycle. The study then used historical data to estimate the parameters of the nonperforming loan ratio response function using an Autoregressive Distributed Lag (ARDL) approach. The estimated parameters are further used to estimate the impact of several counterfactual unionised monetary policy rates on the nonperforming loan ratios and its volatility of Ghana. As robustness check, the Least Absolute Shrinkage Selection Operator (LASSO) regression is also used to estimate the nonperforming loan ratios response function and to predict nonperforming loans under the counterfactual unionised monetary policy rates. Findings: The results of the counterfactual study reveals that the apparent cost of monetary unification is much less than supposed with a monetary union likely to dampen volatility in non-performing loans in Ghana. As such, the WAMZ members should increase the pace towards monetary unification. Originality/value: The paper contributes to the existing literature by explicitly modelling nonperforming loan ratios as dependent on monetary policy and the business cycle. The study also settles the debate on the financial stability cost of a monetary union due to the nonalignment of business cycles and economic structures. [ABSTRACT FROM AUTHOR]

We develop an endogenous growth model with North–South interactions, monetary policy, and a multi-dimensional role for fiscal policy. To boost economic performance, the government of the less developed country subsidizes R&D and intermediate goods production. Besides, to account for the effects of excessive public debt, we introduce a negative externality on productivity and a risk premium effect. Our findings reveal that the steady-state growth rate of both economies depends positively on the subsidies in the South and negatively on the public debt’s externality on productivity and the risk premium affecting the indebted economy. Additionally, public debt externalities increase the equilibrium wage inequality, making it more significant in the South. To minimize these effects, both countries can agree to mutualize their debts to overcome the risk premium. Then, the economy’s steady-state growth rate would increase in both countries. Finally, several policy implications were retrieved. [ABSTRACT FROM AUTHOR]

Following the breakdown of the Bretton Woods agreement the international monetary system has operated based on floating exchange rate arrangements and free capital mobility. A most significant subsequent improvement has been the process of European monetary integration, from the institution of the European Monetary System to the Euro currency. The relationships between the short-term interest rates of European Union (EU) countries and the United States suggest, that in the post-Bretton Woods period the US dollar has held an important anchor currency role, while EU countries acquired considerable monetary policy independence. Further, the stronger relationships between the short-term interest rates of EU countries and Germany may be viewed as a consequence of monetary unification. The econometric evidence provides important insights for the period following the adoption of the Euro, when European economies have in many instances been subject to heterogeneous shocks. [ABSTRACT FROM AUTHOR]

In this paper we analyze dynamic interactions in a monetary union with three fiscal players (the governments of the countries concerned) and a common central bank in the presence of exogenous shocks. The model is calibrated for the euro area and includes a fiscally more solid core block denoted as country 1 as well as a fiscally less solid periphery block represented by countries 2 and 3. Introducing two periphery countries allows us to capture different attitudes of the periphery countries towards the goal of sustainable fiscal performance. Moreover, different coalition scenarios are modelled in this study including a fiscal union, a coalition of periphery countries and a coalition of fiscal-stability oriented countries. The exogenous shocks are calibrated in such a way as to describe the last major crises in the euro area, namely the financial crisis, the European sovereign debt crisis, the Covid-19 crisis, and the Ukraine war (energy price) crisis. Using the OPTGAME algorithm we calculate a cooperative Pareto and non-cooperative feedback Nash equilibrium solutions for the modelled scenarios. The fully cooperative solution yields the best results. The different non-cooperative scenarios allow insights into the underlying trade-off between economic growth, price stability and fiscal stability. [ABSTRACT FROM AUTHOR]

This paper uses a tractable game theory model to study the interactions of structural reforms and fiscal and monetary policies in the European Monetary Union (EMU). Considering the externalities that arise when interest rates have hit the lower bound and monetary policy is carried out through quantitative easing (QE), we show that the subgame perfect equilibrium is suboptimal when structural reforms and fiscal policy are implemented at a national level. Then, we prove that the optimal outcome cannot be obtained if structural reforms are dictated by a supranational institution. By contrast, we establish that the first best can be obtained either by a full‐fledged fiscal union or a rule on QE. Given the practical difficulties that the first of these two solutions have encountered in the EMU, a rule over QE provides a clear, easier and more credible way to make structural reforms and fiscal deficits achieve the levels that maximise the union's welfare. [ABSTRACT FROM AUTHOR]

Unlike previous studies, the current study uses oil price and inflationary shocks to assess the feasibility of actualizing the ECOWAS Vision 2020, which is aimed at creating a monetary union. With the help of the Blanchard and Quah (BQ) decomposition for a sample from 1975:05 to 2018:08, two sets of models are estimated: models for inflationary shocks and models for oil price shocks. It is found that although the vision is a mirage, the creation of a common currency can serve as a shock absorber against the negative spillovers of global and regional inflationary shocks. The study also finds that oil price shocks lead to appreciation of the currency for the oil exporting country Nigeria, while Nigeria, the Gambia and Ghana stand out in their responses to oil price shocks. The study recommends that these countries cannot be part of the Vision and that more coordination among ECOWAS members is needed before this Vision can be actualised.

In the 24 years since its introduction, the euro has experienced a financial crisis, a government debt crisis, a global pandemic, and an energy crisis--and survived. Using a model focusing on households, this Weekly Report shows that the monetary union's stability is rooted in the fact that the middle class neither gains nor loses significantly relative to an independent currency following business cycle impulses. The shifting of the costs due to a crisis as a result of membership in a monetary union occurs at the tails of the wealth distribution, namely between groups of equal wealth in different countries. [ABSTRACT FROM AUTHOR]

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Copyright of Berliner Journal für Soziologie is the property of Springer Nature and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper provides an introduction to the special issue on international lending of last resort. Starting from debates about rescue operations and unconventional policies of major central banks in the contexts of the Global Financial Crisis and the European Debt Crisis, it draws attention to recurring controversies about trade-offs between averting critical contagion in financial markets and avoiding moral hazard. The need for international lending of last resort in strongly interconnected financial systems is more than ever evident, but there is no clear consensus on how to manage it. The contributions to this special issue put relevant issues in historical and theoretical perspectives.

The functioning of multi-nation monetary unions with several central banks is conditioned by many factors and considerations, such as the capacity to deal with crises, the political will and operational skill to foster financial integration and to develop a mix of rules and discretion in the cooperation between the central banks. The Scandinavian monetary union (SMU) between 1873 and 1931 is a case in point for illustrating the importance of these factors and considerations. We examine the policies implemented in the Scandinavian countries to deal with asymmetries of payments flows and with financial crises at three levels: in an account of major crises that required lending of last resort, in a study of the clearing and settlement mechanism established in the union, and in a survey of contemporary economists’ views on lending of last resort and cooperation in the SMU.

The Latin Monetary Union (hereafter LMU) was established in 1865 between France, Italy, Belgium and Switzerland. The agreement provided for the adoption of a common monetary base consisting of specie, and the adoption of the free circulation of gold and silver coins among them, whatever the issuing country. Despite its original goal, the minting of silver coins was subject to numerous restrictions (especially between 1874 and 1876) before being fully suspended by article nine of the convention of November 5th 1878. The necessity for a lender of last resort quickly appeared in practice, even though the 1865 convention, and its numerous amendments, did not mention it in theory. The present article looks at how the idea of the lender of last resort was discussed in the context of the Latin Monetary Union. Specifically, it focuses on two opposing views on the LMU and its problems, as adopted by French economists at the time. The article concludes that the Banque de France played a crucial role in safeguarding the LMU. Referring to Bordo’s 1990 typology of lenders of last resort, we also add a fifth type, that of converter of last resort, to characterise the specific role played by the Banque de France.

We evaluate the stabilization properties of several rules and instruments to reduce government debt in a Currency Union, like the EMU. In a two-country New-Keynesian DSGE model, with a debt-elastic government bond spread and incomplete international financial markets, we study the effects of government debt deleveraging, under different scenarios for fiscal policy coordination. We find that greater stabilization is achieved when the two countries coordinate by stabilizing net exports. Moreover, we find that taxes are a better instrument for deleveraging compared to government transfers. Our policy prescriptions for the Euro Area are to reduce government debt less during recessions and liquidity traps, and to do so using distortionary taxes, while concentrating on reducing international demand imbalances. [ABSTRACT FROM AUTHOR]

In this paper, we contribute to the business cycle synchronization literature by investigating a disaggregated level of foreign direct investment (FDI) that has been systematically overlooked by previous empirical studies. We disentangle FDI into two layers – extensive and intensive FDI margins – and examine their effects on the synchronization of the European Union member states with the euro area (EA) in the period 2000–2019. Our analysis, performed using the simultaneous equations methodology, confirms the over-aggregation bias, as more intense existing FDI (the intensive FDI margin) boosts synchronization, whereas new FDI (the extensive FDI margin) seems to compete with the creation of an optimum currency area within the EA. Furthermore, our results suggest that new investment promotes specialization, whereas more intense FDI reduces it, because the deepening of already existing FDI occurs in countries with similar business cycles and industrial structures. [ABSTRACT FROM AUTHOR]

Central bank independence has been championed on the grounds that it avoids political business cycles, the time-inconsistency problem of discretionary monetary policy, and political conflicts. However, after the financial crisis, central banks have resorted to unconventional monetary policies and embraced additional tasks, making monetary authorities more exposed to political interference. This new reality has put into question the long-lasting consensus on the desirability of central bank independence. We add to this debate a new argument in support of that independence, namely, it internalizes the fiscal spillovers that arise in a monetary union, which is not a full fiscal union.

The debate about the use of fiscal instruments for macroeconomic stabilization has regained prominence in the aftermath of the Great Recession, and its relevance has suddenly increased further, after the recent Covid-19 shock. The analysis of fiscal stabilization in the United States, a monetary union equipped with a common fiscal capacity, has often informed the literature on the European EMU and could serve as a reference for its possible future reforms. This paper expands that literature in three ways: first, by measuring stabilization not only as inter-state risk-sharing of asymmetric shocks, but also as intertemporal stabilization of common shocks; second, by doing this for specific items in the US federal budget, both on the revenue and on the expenditure side; and third, by also measuring the impact of the federal system of unemployment benefits and of its extension as a response to the Great Recession. Corporate and personal income tax, on the revenue side, and social security benefits and federal grants, on the spending side, are the most effective items. The US federal system of unemployment insurance provides great stabilization in the event of a large shock, in particular when enhanced by the discretionary program of extended benefits. These findings imply that a proper design of the budget can maximize its stabilization effect, when it helps bridging the gap between higher mobility of capital and lower mobility of labor, by collecting revenues based on the income of the most mobile factor (corporate income tax) and providing support to the income of the least mobile factor (social security). [ABSTRACT FROM AUTHOR]

Since the launch of the euro in 1999, the policy aspiration of the Economic Community of West African States (ECOWAS) for monetary union has increased despite its convergence challenge. This study investigates the economic characteristics of ECOWAS for a successful and sustainable monetary union. We use cluster analysis for the period 1998–2018. The findings show that there is considerable heterogeneity in the economic characteristics of ECOWAS countries. This suggests that the countries are not yet economically ready for a regional wide monetary union. The study also revealed key variables, including inflation, exchange rate volatility, intra-regional trade, that clearly demarcate the two pre-existing monetary zones in the region. The study concludes that ECOWAS policymakers must enhance policy harmonisation and intra-regional trade. [ABSTRACT FROM AUTHOR]

Relying on recent republican political theory, this article introduces and clarifies the concept of creditor domination and applies this concept in an analysis of the eurozone debt crisis and the EU's response to the coronavirus pandemic. The article argues that two conditions, one institutional and one structural—related to the institutionally incomplete European monetary union and a structural transformation in international finance—conspired to render periphery member states in the eurozone vulnerable to creditor domination, to which they were manifestly subject in the eurozone debt crisis. The article also argues that the EU's pandemic response "NextGen EU" represents a fundamental change in Europe's politics of sovereign debt, which, even if only a temporary vehicle for debt mutualisation, has rendered member states much less vulnerable to creditor domination due to the pandemic's economic fallout. Finally, the article discusses Richard Bellamy's proposal for a "republican Europe of states" and argues that Bellamy's proposed reforms, while insufficient to overcome the conditions of creditor domination in the eurozone, point to a dilemma for republicans, who may risk emancipating European citizens from creditor domination only at the cost of subjecting them to the dominating power of a weakly legitimated supranational fiscal authority. [ABSTRACT FROM AUTHOR]

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